Meeting the Decommissioning Challenge in Southeast Asia

Southeast Asia

Following on from our previous Law Now on the decommissioning regime in the UK (see our Law-Now here and here, this Law-Now considers the issues and challenges facing the offshore decommissioning sector in Southeast Asia and the South China Sea, arising in part from the different decommissioning frameworks in some Southeast Asian countries such as Indonesia, Malaysia and Thailand.)


Southeast Asia comprises 11 nations.1 Apart from Laos, which is landlocked, 10 are coastal states. The main body of water is the South China Sea; the Philippines, Vietnam, Malaysia, Brunei, Indonesia, and Singapore all have integral rivers that flow into the South China Sea. Indonesia, Malaysia, Thailand and Vietnam are major oil producing countries.

It is estimated that:

  • The South China Sea holds about 190 trillion cubic feet of natural gas and 11 billion barrels of oil in proved and probable reserves, mostly along the margins of the South China Sea;2
  • more than 200 offshore fields in Southeast Asia, comprising over 1,500 platforms and over 7,000 wells are likely to stop producing by 2030; and
  • the total decommissioning costs in the South China Sea range from US$ 30 billion to as much as US$100 billion.

Despite the size of the task, decommissioning activities in Southeast Asia have been limited to date, with only a handful of countries being able to point to any decommissioning work in the last 20 years and so there is relatively little local experience of decommissioning in practice to draw on.  The challenge is made greater by other region specific issues: (i) the decommissioning legal frameworks vary in sophistication and development from one Southeast Asian nation to another, (ii) there is real uncertainty in relation to the financial obligations associated with the decommissioning of offshore assets; and (iii) nations continue to battle over territory in the South China Sea.

Lack of Unified Regulatory Framework

The approach to the international conventions relevant to decommissioning of offshore installations is inconsistent across the region. 

For example, only Cambodia, Indonesia, Malaysia and Thailand are signatories to the Geneva Convention on Continental Shelf 1958 (the “1958 Geneva Convention”) which requires that “any installations which are abandoned or disused must be entirely removed”. Of the Association of Southeast Nations (“ASEAN”)3 nations, only the Philippines is a signatory to the 1972 Convention on Prevention of Marine Pollution by Dumping and Other Matter (the “London Convention”) which prohibits all “dumping” of waste and other matters, which includes the deliberate disposal at sea of “obsolete vessels, aircraft and offshore installations”. The London Convention’s 1996 Protocol extended the prohibition to “any abandonment or toppling at site of platforms or other man-made structures at sea, for the purpose of deliberate disposal.”

By contrast, all the ASEAN nations are signatories to the United Nations Convention on the Law of the Sea 1982 (“UNCLOS”).  UNCLOS confirms sovereign and exclusive rights over the natural resources in a nation’s exclusive economic zone and continental shelf. UNCLOS also obliges a nation to protect and preserve its marine environment and ensure that any activity carried out under its jurisdiction or control are conducted so as to not cause damage by pollution. UNCLOS further provides that any “installations or structures which are abandoned or disused to be removed to ensure safety or navigation, taking into account any generally accepted international standards…”.

However, these international treaties do not automatically have the force of law in every signatory country – that requires  domestic legislation, and the approach taken is not consistent across the region. In Malaysia for example, UNCLOS’ provisions with respect to the establishment of Malaysia’s exclusive economic zone were ratified in Malaysia’s Exclusive Economic Zone Act 1984 but the provisions in UNCLOS and the 1958 Geneva Convention in relation to decommissioning have not been similarly ratified into Malaysian law, so that the decommissioning provisions in the 1958 Geneva Convention and UNCLOS do not have force of law in Malaysia.

Consequently, each Southeast Asian nation has different international obligations with respect to the decommissioning of offshore installation within its exclusive economic zone, adding to the uncertainty.

There have been attempts to come up with a regional set of guidelines. The ASEAN Council on Petroleum (“ASCOPE”), the association of national oil companies (“NOCs”) in ASEAN, published the ASCOPE Decommissioning Guidelines Oil and Gas Facilities (“ADG”) in 2012. Prepared in conjunction with all relevant NOCs to provide a guideline for operators in Southeast Asia, the ADG “aims to establish a balance between environmental protection, cost, safety and technical considerations in accordance with applicable global and regional conventions and guidelines... (and) will be for use by the member countries and will cover normal operational cases.”4 The ADG is intended to complement national decommissioning procedures. In addition to reiterating the positions of the major treaties in respect of offshore platforms, the ADG also addressed other issues not specifically addressed in the treaties, such as pipelines, well plugging and abandonment, and subsea facilities. The ADG assume that export pipelines will be left in situ, provided that there is no history of pipeline spanning, or movement of the seabed. However, there has been little progress since publication in 2012, for example, there does not appear to have been any move by ASCOPE to have the ADG implemented domestically within its member nations.

Domestically, each Southeast Asian nation has different requirements for decommissioning. For example:

  • In Indonesia, the implementation of Oil and Gas Law No 22 of 2001 meant that every production sharing agreement (“PSC”) must contain provisions with respect to post-operation obligations. Government Regulation Number 35 of 2004 introduced high level principles which mandate the allocation of funds for post-mining operations, with obligations to be included in the PSC. However, the details were still left to the contracting parties.
  • In 2008, the model form PSC included a standard set of decommissioning obligations, with little detail as to the standards/processes to be followed.
  • Since 2010, SKK Migas (the institution established by the Government of Indonesia to manage the upstream oil & gas business in Indonesia) has been issuing guidelines (Guidelines on the Work Procedures for Abandonment and Site Restoration No. 040/PTK/XI/2010 dated November 24 2010) on the process for preparing for decommissioning/abandonment and site restoration (“ASR”) funds. The PSC contractor must allocate funds for post-operation activities to a special reserve fund from the commencement of the PSC term, to be included in the programmes and budgets. The mechanisms surrounding the administration of the funds are to be agreed between PSC contractor and SKK Migas, and the dispensation set out in the PSC. However, these are only guidelines and do not have the force of law.
  • In Malaysia, while Malaysia is party to a number of international conventions that address decommissioning, those have not been incorporated into domestic law and there is not one specific piece of legislation that governs decommissioning. Operators looking to decommission will have to comply with various pieces of legislation and liaise with different government agencies, such as the Department of Environment and the Malaysia Marine Department. Decommissioning activities may also require an environmental impact assessment to assess and mitigate potential environmental impacts.
  • Petroliam Nasional Berhad (“PETRONAS”), Malaysia’s national oil company, has produced decommissioning guidelines in the form of the Petronas Procedures and Guidelines for Upstream Activities (“PPGUA”), with the latest amendment in 2020. Under these guidelines, operators must submit a decommissioning plan to PETRONAS during the development phase, and all proposed decommissioning activities are subject to review and approval by both PETRONAS and the Malaysian government. Operators must also contribute to an abandonment fund (referred to as the abandonment cess in the PSCs) to be paid to PETRONAS, calculated annually by reference to the annual production and the estimated total abandonment cost.
  • In Thailand, oil and gas operations are governed by the Thai Petroleum Act 1971 (as amended) (the “Petroleum Act”) and the Petroleum Income Tax Act 1971 (as amended). Under the Petroleum Act, the concessionaire or PSC contractor is required to provide a security deposit in respect of its responsibility for decommissioning works. The value of the security deposit is approved by the Director General and may not be less than the estimated decommissioning costs set out in the approved decommissioning plan.

Difficulty in Identifying Legal Entity with Decommissioning Liability

Concession agreements and PSCs - It is not necessarily straightforward to identify the entity with liability for decommissioning in each case. The older concession agreements or PSCs did not provide for decommissioning of the offshore installations – for example:

  • In Indonesia, abandonment and restoration obligations were only introduced in PSCs in the mid-1990s.
  • In Malaysia, the first PSC was entered into between PETRONAS and Exxon Corporation in 1976 but PETRONAS only started requiring PSC contractors to design offshore platforms with decommissioning plans after the International Maritime Organisation (the “IMO”) issued “Guidelines and Standards for the Removal of Offshore Installations and Structures on the Continental Shelf and in the Exclusive Zone” in 1989 (the “1989 IMO Guidelines”).
  • In Thailand, the Petroleum Act 1971 was amended in 2007 to provide the Director General of the Department of Mineral Fuels with the authority to prescribe regulations concerning decommissioning activities and to introduce the general principle that the concessionaire or PSC contractor is required to provide a security deposit to ensure that it will assume responsibility for the decommissioning works.

New legislation with respect to decommissioning may have an impact on the older concession agreements, PSCs or risk service agreements, subject to the terms of each relevant agreement, and whether the legislation has retrospective effect. In practice, they often lack clarity. For example, in Thailand, considered to be the country with the most developed decommissioning legislation in Southeast Asia, Chevron and Thailand’s Ministry of Energy have been embroiled in a dispute over decommissioning costs in the Erawan field since 2019, which relates to the impact of a 2016 Thai law requiring operators to pay the decommissioning costs of assets they installed even if they no longer operate them.

Joint Development Agreements – another regional feature that adds to the complexity is the large number of joint development agreements (“JDAs”) entered into between States or NOCs in respect of oil & gas fields that straddle more than one country or areas that are subject to several maritime claims.

There are a many such development agreements or arrangements between States or NOCs and oil and gas companies. However, there is no standard form of agreement; these are usually bespoke agreements, subject to different rules and covering different activities.

For example, in the Gulf of Thailand, Malaysia signed 2 JDAs with Thailand and Vietnam respectively. The Malaysia and Thailand JDA was based on a 1979 Memorandum of Understanding in respect of an area of continental shelf that was claimed by both Malaysia and Thailand. The MOU is valid for 50 years or indefinitely if no agreement is reached on boundaries. Its scope extends beyond the exploration and production of hydrocarbons. However, a 1992 Malaysia-­‐Vietnam MoU deals with a smaller overlapping area, is limited only to the exploration and production of hydrocarbons and applies the laws of Malaysia to the area for petroleum operations.

Unless these types of agreements are clear on decommissioning liabilities at the end of the term of JDA, they may give rise to additional difficulties in ascertaining the entity with responsibility.

Lack of Experience

The oil & gas industry in Southeast Asia is relatively immature so that few regional contractors significant experience of decommissioning. Although this may present an opportunity for international contractors, there are particular challenges to undertaking decommissioning work in Southeast Asia that may not arise in other areas. For example, offshore structures in Southeast Asia are more prone to attracting dense marine growth due to the shallow water depths - often less than 100m – and the tropical climate of South East Asia.

Connected to the lack of experience, is a lack of understanding of the cost involved in decommissioning. Even though an operator or contractor may have started contributing to a decommissioning fund, it is unlikely that the fund will be adequate. Mature assets are increasingly being acquired by NOCs with the result that the responsibility for decommissioning will fall on the governments, and ultimately the taxpayers.


The lack of a robust and uniform regional regulatory framework, the lack of practical experience, as well as the geography and geopolitics of the Southeast Asian nations all contribute to the challenges facing the decommissioning sector in Southeast Asia. While this also gives rise to opportunities, it is estimated that more than 200 offshore fields in the region will stop production by 2030 – the consequent extent of expected decommissioning activity means that greater clarity in relation to decommissioning regimes is urgently needed.


1 Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.


3 A political and economic union of 10 states in Southeast Asia comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.